Meeting with the SA Pharmaceutical Industry Department of Health 4 September 2008 DTI’s new economic incentives Part 1: The pharmaceutical sector in the.

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Presentation on theme: "Meeting with the SA Pharmaceutical Industry Department of Health 4 September 2008 DTI’s new economic incentives Part 1: The pharmaceutical sector in the."— Presentation transcript:

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Meeting with the SA Pharmaceutical Industry Department of Health 4 September 2008 DTI’s new economic incentives Part 1: The pharmaceutical sector in the SA economy Essential facts & figures

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Pharmaceutical Sector Strategy Key Findings of the ARV API report:  Generic API competition is most intense in 1 st generation ARVs, such as Lamivudine, Zidovudine and Nevirapine, which are sold at at a discount relative to the fully inclusive price. Not recommended to compete with these ARVs.  There will be 1.64 million adults on ARVs in SA by 2012 according to DoH estimates  Assuming that 75% of these patients will be on the public. sector’s 1 st line regimen (Efavirenz, Tenofovir and Lamivudine) the requirement for these APIs will be: Efavirenz 325 tons/annum and Tenofovir 135 tpa.

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Pharmaceutical Sector Strategy Conclusions of the ARV API report (1) Conclusions of the report, based on the current ARV API market prices, current prices of raw materials and the presently “best in class” manufacturing technology A production facility with a nameplate capacity of 325 tpa of Efavirenz and 135 tpa of Tenofovir will cost US$ 72.5 million (R564 The non-imported component for ARV APIs will rise from 0% to 40% (presently 100% imported). The local value added will be 30% of the total cost, The annual revenue of the project will peak at R2.6 billion (in 2008 Rands) per annum, The cost of production of Efavirenz will match or slightly exceed the present market price of $650/kg,

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Pharmaceutical Sector Strategy Conclusions of the ARV API report (2) ▪The cost of production of Tenofovir, including a 5% margin, will slightly exceed the present market price of $730/kg, Conclusion: Unless there is government support, the project will have a negative NPV of R 520 million and will not be an attractive investment for a private company. Positives: The socio-economic benefits of the project would include: Local value added R1.05 billion Foreign exchange savings R1.7 billion per annum, Increased security of supply of ARVs, better control over medicine quality, and Development and diversification of the chemicals sector into high-value fine chemicals’ production; Job creation and skills development.

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Pharmaceutical Sector Strategy DTI’s economic incentives (6) Enterprise Investment Programme – Manufacturing Investment Programme (EIP – MIP)  Time-lines: EIP – MIP Launched 21 July Will remain available for the next 6 years, until  An investment incentive to stimulate investment growth, in line with the National Industrial Policy Framework (NIPF).  Aim: To enhance the sustainability of manufacturing investment projects by SME’s and to support large-to-medium investment projects in manufacturing that would otherwise not be established without the grant.  Projects above R 5 million qualify for an investment grant between 15% and 30% of their qualifying investment costs, calculated on a regressive scale, payable over two years. Grant max. R 30 million.

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Pharmaceutical Sector Strategy DTI’s economic incentives EIP-MIP (7) The applicant must demonstrate how the EIP - MIP grant is necessary for the project to proceed. Projects are expected to explore other sources of funding before seeking the EIP - MIP grant funding. The principle is to use the EIP - MIP incentive to:  Fill funding gaps where there is not sufficient equity for capitalization of the project;  Fill funding gaps where cash flows cannot support more third party debt;  Influence location of the project in favour of RSA in case where the investor is considering other countries for locating the project  Satisfy the company’s internal investment evaluation criteria (IRR or NPV).